Analysis: Gas prices on way back up?

Gas prices continue to trend slightly lower throughout much of the Mid-Atlantic region, this as Old Man Winter continues his arctic grip on the region.

The national average price at the pump dropped to $3.28 per gallon Friday, a penny below week ago prices, yet four cents less than one month ago and 14 cents below the same date last year.  This week marks the first time in 2014 that the national average has posted a monthly discount and the first time since December 1 that it has reflected a daily, weekly and monthly discount.  After rising to $3.33 on January 3 – a two-month high – the national average has now declined for 22 of 28 days.

Crude oil prices have been relatively flat to begin the year and as a result, gasoline prices have been largely left to take direction from regional and local factors.  This has resulted in gas prices that have been influenced by extremely cold weather.  Frigid temperatures can cause refinery issues that pressure prices higher but can also decrease demand for gasoline, as motorists limit driving, which puts downward pressure on prices.  Crude oil settled at $97.49 Friday, up less than $1 on the week.

In its weekly report, the Energy Information Administration noted that U.S. crude oil stocks built by 6.4 million barrels to 357.6 million barrels, an increase of more than twice of what was expected.  Gasoline stocks fell by 819,000 barrels to 234.4 million barrels due in part to surprisingly brisk demand.  Gasoline demand jumped 525,000 barrels per day (bpd) last week to 8.584 million bpd following several weeks where demand was barely above 8 million bpd.  Last week’s demand number is likely an anomaly, as this week’s winter weather is expected to drop demand back toward 8 million bpd next week.

“Gas prices have trended slightly lower in most areas this month due to relatively flat crude oil prices and decreased demand due to severe winter weather,” said Martha M. Meade, Manager of Public and Government Affairs for AAA Mid-Atlantic.  “That said, as we move into February, refineries will begin scheduled seasonal maintenance as they convert to more expensive summer blended gasoline.  As this process begins, motorists should expect to pay more for gas in February.”

While retail prices have fallen slightly to begin the year, there is a good chance that prices will rise in February.  This increase is likely to be the result of refineries beginning to reduce production to conduct seasonal maintenance, which can limit gasoline supplies and cause market uncertainty.  The maintenance period, already begun by some refineries, typically begins in February and could last through late spring.  In 2013, the national average increased 50 cents per gallon from Jan. 18 to Feb. 27.

CURRENT AND PAST GAS PRICE AVERAGES

Regular Unleaded Gasoline (*indicates record high)

AAA is the most comprehensive resource for gas prices.  Unlike the Lundberg Survey of 7,000 gas stations, AAA reports reflect actual prices from credit card transactions at more than 100,000 gas stations in the U.S.